panicked about retirement

iVillage Member
Registered: 04-08-2003
panicked about retirement
22
Sat, 05-30-2009 - 7:27am

I'm only 36, but last night I nearly had a panic attack about retirement. As a result of a bad business...we have maybe $1000 in an IRA. We've been so concerned with keeping our head above water that we haven't been able to focus on it.

My husband starts a new job this week and will actually be taking a small pay cut in the beginning. The up side is that he will be getting much better hours and will be going back to school to complete his degree. We will need to take out a loan for whatever financial aid doesn't cover, but we think this will be necessary for our future. It will only take him about 1 year to finish. We are also looking into him re-enlisting in the Air National Guard and that may help with education significantly. When he is finished, he would like to become an Air Force Chaplain. We will end up with more debt in the process...but some financial security from the Air Force.

Is 40 too old to really start putting it away for retirement? That's about where we will be when we get our feet back on the ground. I've tried to find a calculator to crunch the numbers and see what we need to put away each month...but they are all so complicated.

Thanks for any advice...samey

Pages

iVillage Member
Registered: 09-22-1999
Sat, 05-30-2009 - 9:06am

Dear Supersamy,


Basically, if you never save anything for retirement, you'll never have anything.

iVillage Member
Registered: 01-25-2009
Sat, 05-30-2009 - 12:48pm

You should panic. It's a good thing to panic at 36 instead of waking up 66 and realize you have nothing.

If you husband indeed end up with the Air Force, after 20 years he should have a retirement equals to 50% of his highest three pay periods. It would indeed give both of you security. But a lot of things can happen in 20 years. I am not wishing anyone ill, just being brutally realistic, but people have known to split up. So it is not a good idea to count on that entirely and have nothing in your own name. I would put away as much as you could now. In fact, make it a priority - have that money taken away before you even see it. Does your employer have a 401K plan that would do that?

I played with one of those retirement calculator thingie. When I was 36, I had about 80,000 did not get a warm and fuzzy feeling at all, and have since upped my savings. At this time I am putting away close to 20,000 a year for retirement only.

iVillage Member
Registered: 08-24-2007
Sat, 05-30-2009 - 7:42pm

Hi Samey-


The old adage "better late than never" definately applies to this situation.

Kate


empty purse

iVillage Member
Registered: 04-08-2003
Sun, 05-31-2009 - 5:44am

We filed for bankruptcy last year as the result of a bad business venture. The partner left everyone high and dry and we were getting sued left and right. We ended up filing in order to make all of the creditors go away since we didn't have the money...the partner did.

That's behind us, but we spent a lot of money in legal fees to get to this point. We also don't have a retirement. I'm a SAHM and don't have a 401K plan. I have started making some money from time to time...but that usually goes to extras like new tires. The upside is that when I can work again...the money isn't "needed" and can go directly to retirement. We currently don't own a home either. We decided to let it go in the bankruptcy and I think made a wise decision. That house is soooooo upside down now we would've been years digging out of it. We are currently renting a home from my in-laws. They won't be retiring for a few more years so this works out for all of us.

In the meantime...I need to find the best way to invest on my own. As I mentioned in another post, we each have a ROTH with USAA, but they have denied us online access due to the bankruptcy. Should I continue with them or start again fresh somewhere else? I guess online access really isn't that important. I'm sure my dad doesn't use it.

Any suggestions? I'm really looking for a way to calm my nerves.

iVillage Member
Registered: 01-25-2009
Sun, 05-31-2009 - 12:58pm

I would think if your husband is going to be with the Air Force in a year or two, it may not make sense to buy a house right now unless you know where he will be stationed. Maybe it makes more sense to use this time to put your finances in order and start with retirement and college fund for your kid(s).

The general rule of thumb is to split your investment into stocks and bonds. For someone that is 36, your would put 36% of the investment in bonds and 64% in stocks. Stocks are supposedly more risky, but provide better return, at least historically that's the case. Bonds (or money market) are lower in risk, but with not so high return. I was told that you are supposed to invest more in stock when you are younger to maximize the return (and if things gone sour, like right now, you still have time to recover before retirement) and gradually shift your investment into bonds, money market, or other more secure things. For example, in another 10 years, you may want to put 46% in bonds and 54% in stocks.

Now, somewhere someone made up these as a guideline. Each person/family will need to do what works best. If online access is not that important, I would stick with USAA provided their "management fees" are competitive. Basically all these companies manage your investment for a price. Some hit you upfront, some hit you when you take the money out, some do it all the time. If you look at the paperwork associated with your ROTH account, your should see some fees. Compare those fees with Edward Jones (you mentioned that earlier), or some other mutual fund companies. You may also look into having a ROTH account with your credit union if you belong to one, as some have that kind of service.

Just to clarify, when I said "stocks", I don't mean go out and buy stock in XYZ company, but more the line of a mutual fund that comprised of stocks, especially index funds, such as S&P500 or what not. Basically you get a wide mix of stocks when you buy mutual funds and the theory behinds it is it is not very likely that everything tanks all at once, so if something is down, something may be up, and you are exposed to less risk that way than buying stock of one company (putting all your eggs in one basket). Now would you be able to have online access with USAA after 3 or 7 or however many years?

The general wisdom is fund you own retirement first, then help your kids with college. One thing I do for my nieces and nephew is instead of getting them Christmas and birthday presents, I opened a college fund account for each of them and put money in instead of getting toys and clothes, etc. Other relative can contribute, too. It is almost like a bridal registry! The money grow tax free. Yes, Auntie Marie is no fun, but I think in the grand scheme of things they need money to pay for tuition more than clothes they will outgrow in a year or toys they play with for five minutes and lost interest.

Another thing to keep in mind is once your husband joins the Air Force, he will also be eligible for TSP (thrift savings plan), sort of like a government version of 401K plan. At this point I am not sure about if there is any matching in contribution from the government's part, but there are about ten funds to choose from the the management fee is very reasonable.

Before you start any of these investment, do have an emergency fund anywhere from $1,000 to $10,000 first, to cover any unexpected things such as car repair, etc. Most people start with a $1,000 one.

If you husband is the main earner in your family, does he have life/disability insurance?

Sorry I am rambling. But in the order of importance, I would say 1. emergency fund, 2. retirement, 3. kid's college fund. And make sure he has enough insurance coverage.

Some community centers have investment classes that run for a couple nights for $50 or so. Maybe you like to check if they have that where you live. They are not affiliated with any financial institutes and will not try to sell you anything.

iVillage Member
Registered: 04-08-2003
Sun, 05-31-2009 - 2:42pm

Thanks Marie. That was great.

I'm not too worried about the house right now. We are currently living in what will be my in-laws retirement home. We are paying a reduced rent and can stay for at least 3 more years. I do agree that retirement is the next priority. I have a couple of thousand in an emergency fund and my kids have a small college fund that my grandmother started. I love them dearly, but I have four and the best gift I can give to them is not to have to support their parents in their old age. I'm trying to utilize the benefits of our state and they will hopefully all graduate high school with a 2 year college degree.

The Air Force would be a nice cushion for our retirement...but I do know that I need to plan on my own. I'm hoping that if I invest independently, the Air Force can help make up the difference for me getting a late start.

It there one place I can go to research the fees associated with funds? I don't think that USAA will ever let me back onto their website...but if they are managing my funds well I think I'll stay with them.

My dad loves to research with the Morningstar Report, but they come with a fee online. I'm going to try and check the library. Any other good books you can recommend? I already reserved Investing for Dummies and the Suze Orman 2009 Guide.

Thanks again for all of your help. samey

iVillage Member
Registered: 01-25-2009
Sun, 05-31-2009 - 6:14pm

If you have invested in USAA and still have money with them, even they do not allow you to get on the website online, you should still be able to call and ask question. By law all these companies are required to tell you the "expense ratio" - the cut they take from you for managing your money. This is an article from Smartmoney.com, from the same publisher as the Wall Street Journal on index funds. USAA's index fund is listed on the top five.

http://www.smartmoney.com/investing/economy/best-and-worst-sp-500-index-funds-by-cost-23549/

The reason I suggest index funds is because they usually have low expense ratio, and in the last 20 or 30 years, outperform the market. If your dad does research with Morningstar, he must be a rather seasoned investor. Why not sit down with him for an afternoon and pick his brain? And there are tons of other information about investing on the Smartmoney.com website. I believe it is all free.

Disclaimer: I don't work for any bank/financial institution nor have family members working in these places.




Edited 6/1/2009 12:28 am ET by marie_1229
iVillage Member
Registered: 11-17-2007
Sun, 05-31-2009 - 8:46pm

iVillage Member
Registered: 01-25-2009
Sun, 05-31-2009 - 9:28pm

For your information, you CAN invest your ROTH IRA in money market account and bond funds instead of in stocks. The advantage is with a ROTH, you put in after-tax money, the interest is tax free (as supposed to a normal money market account which you have to pay tax on the interest you earn) so you end up with a little bit more money. Unless you are a very well informed investor, investing in individual companies IS risky. Which is why in the previous posting I suggested index funds, which is linked to the performance of a large number, often thousands of companies.

The value of my retirement account drop about 30% as well, but I have at least 14 years before I can even think of retiring so there is plenty of time to recover. By then I will also have a retirement of 50% of my pay.

Another way to look at it is you cannot consider it a lost (or gain, for that matter) until you sell the stock, or in this case, begin withdrawing money from a retirement account. Anything in between is just market fluctuation.

As for the original poster, I agree with her that in her situation, it does not seem to make sense to buy a house right now, not knowing where her husband may end up at in a year or two.

There is a lot to be said about a paid-off house, however, in my situation, my retirement accounts have been earning anywhere between 8 to 11% for the last 15 years, and dropped about 30% last year. So overall, the track record is still very decent. I have a 15-year 4.5% fixed mortgage, and it does not make sense to pay extra on my mortgage to save 4.5% when the same money can be earning 8% somewhere else. In any rate, I will have the mortgage paid off by retirement.

iVillage Member
Registered: 04-10-2003
Mon, 06-01-2009 - 8:19am

Its never to late, but earlier is better.


I am only 27 and get myself all worked up because of those stupid examples that tell you if you started putting away $100 a month at age 18 and did it until you are 25 you would have more money then someone who starts at 25 and does it for three times that amount of time . . . who the heck starts saving for retirement at 18????? I get the point, I really do . . . compound interest. But its still demoralizing everytime I hear it (and every stupid retirement article I read has a similar example). I digress . . .


Now that you have a clean slate, its the perfect time to get into habits that will last with you. Can you start putting anything away for retirement? I just opened a Tax Free Mutual Fund Account last week with . . . wait for it . . . $25 whole dollars, lol. I know I can affort $25 every two weeks, and the money will grow tax free (I am limited to $5000 a year I can invest). Its not much, but its something.


At the risk of sounding negative, I would say do NOT rely on your husband getting the job. Plan for the worst case scenario and then when it


Bex -

Pages